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April 17, 2020


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Noel -- how do you think what the "right" or "fair" number is? I.e., why is 60% haircut too generous to creditors?

That's an excellent question!

It's not a matter of fairness. Rather, it's about sustainability and negotiation.

Argentina is a low-savings country dependent on primary product exports. Argentina is about to issue a massive amount of internal debt in order to finance Covid relief; the more fiscal space it has, the better. And who knows if the place will grow the way that it did after 2005? The smaller the debt, the more sustainable.

But my main point is about negotiation. First offers are usually rejected. Why then start with a relatively low number? There may be a strategy there, but it's not clear to me.

Thanks for your thoughts! I suspect that Argentina can indeed service their offer (and likely something even more) but to stick to your point on negotiation -- I actually found their offer almost spot on in terms of negotiation strategy. In a sovereign restructuring with a cohesive group of creditors the sovereign should know that they have to give creditors at least a little bit above the market price. The market price is essentially saying: "This is our BATNA. We can get this even if you play hardball". Naturally that isn't always the case (and market volatility, etc) but that's what the strategy appears to be

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